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Percentage of monthly income spent on a car?
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For me, my first car was 80% of annual income (way to high, but finishing school...whinin 1 yr that was 25%. Next car was 30%; next car was 25%; next car was 35% but with a large down payment. Final two cars were 28% and 22%, both with large down payments.
It can go just like tboner above said - 'of course we bought 1/3 of the house the bank says we can afford, so we can buy too much car, LOL' - and never raise a lender's debt/income red flag. And like, Serg said, that's easier to do if income's larger. And, LOL, that all supposes higher income households need to comply with retail lender guidelines, which isn't always true either.
Tempest in a teapot. Serg and T are saying the same thing. It's a matter of personal priorities.
So, it makes sense that a high income person can spend more under this model.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
However, considering the number of miles, my entire expenditure is pretty high. But still not over 20% of my household gross. The total number is staggering so maybe I better stop adding it up and tracking costs on my PDA.
TB
There are always exceptions, either way, however this is a pretty good rule of thumb to judge if you are going overboard on the car payments. Don't judge how much car you should have by how much money the banks will loan you.
So I guess basically, if you've bought the most house you can afford but don't carry a credit card balance, then about the most biggest car payment you're going to be able to afford is 8% of your gross.
I can kinda see Sergey's earlier point though. Let's suppose I got a raise that came out to $100 per month. Actually, I think that's about what my last raise came out to! Well, you'd think then that I'd be able to take on $100 a month more debt, but not be worse off. Truth is though the mortgage company would only let me take on $28 more debt for housing, and $8 a month for everything else.
I guess they figure the more you make, the more you're going to blow.
I don't know that it's necessary or even advisable to put an exact percentage of income one should spend on a car payment. I think debt to income ratio is much more important. Lots of families make $100k or more a year and are basically broke. Other families make $50k combined but are debt-free, own their home free and clear, etc. I think money management skills are really a lot more germain to the discussion than income.
As someone who has been on both sides of this income spectrum I can tell you its very very easy to get into financial trouble making $30K as it is $150K. No one is stopping you from wasting money just because you only make $30K.
Since everyone has their own definition of what is affordable, and everyone has their own comfort level regarding financial risk and liability, this whole conversation is 100% moot. The only "rule" is that there are no rules.
Regardless of what you make everyone has the opportunity to destroy themselves financially if they so choose. Who cares about % of Gross Income when you've hopped on the train to Financial Hell.
That said, it perplexes me that it's generally quite easy to borrow (and way too much) money for a car, while getting a mortgage, for many, is next to impossible without finding your grocery receipts from 1989.
I imagine if the car lenders actually stuck to a 'ten percent of income' or some type of fixed debt-to-income ratio, they'd sell about a third the cars they do now. The automakers and associated lenders are all too willing to loan more than buyers can really afford.
That's assuming all other expenses between the 30k and 150k salaries are equal, correct?
Girlfriends become spouses, surprise, baby on the way...
I found myself saving more money when I was a GS 5(gov. payscale) than my current grade.
You made my point concerning all other finances being equal, which likely will not be the case. With increasing income, all those wants and desires start coming to fruition.
While it is dangerous to make broad generalizations, I noticed two distict patterns in the filings in 2000-02. First, if the family income was less than 30k, generally, the precipitating factor in the personal bankruptcy was an unexpected medical bill that was not covered by medical insurance. Also, a lot of the car loans were from the "tote the note" lots that are on every corner in Chicago.
If the family income was 80k and above, and there were A LOT of them with even larger incomes, it was generally due to lifestyle issues. That is, there was a home mortgage that was generally 80-125% mortgages and generally two late model (<2 YO) cars. Also, add tons of credit card debt.
Oh well.
It isn't just the cost-of-living going up which wreaks havoc with budgets. It's more likely the increase in the standard-of-living that does it, time and time again. After all, gotta keep up with the Joneses .........
I have a house that I rent out to people and I have noticed a trend for renters. They have great new cars (with big payments), great furniture, and truly awful credit. I guess that's why they are renters at the point in life when their peers have nice houses of their own to live in.
Still, you can write off your mortgage interest and property taxes, so the net effect would probably be that you're only spending about $700-800 a month. That $500 or so you're saving, versus renting, would pay down that initial $5-8K pretty quickly, and then give you a nice chunk o' change to play with after that.
Maybe in some areas it's actually cheaper to rent than to own, but it doesn't seem that way around these parts, any more!
I can also see Sergey's point. Someone who moves a lot wouldn't necessarily reap these benefits and the ability to cut and run would be convenient for them.
Now back to the topic. So lenders use a 38% debt to income ratio as a guideline. Does this include student loans as well as mortgage and car payments?
If you've got 50% listed on your bureau, you're a BK/repo waiting to happen and your kids don't get to go to Mickey D's very often.
Then there is the prospect of being "house poor." You can have a beautiful house, but all your money goes to the mortgage. You're uninsured and driving a rusted-out '76 Pacer, eat ramen noodles for breakfast, lunch, and dinner, and your kitchen table is an old cable spool.
Just sounds like it might fit my criteria (not too big, pretty quick, stick, moonroof with headroom left over, and flexible utility value, in a reasonbly cool/styligh/unique package).
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
I paid $400 over, and there was a $2500 rebate plus an additional $500 (here in the Philly area) that was regional because of the recent auto show.
The car is surprisingly fast. There's some torque steer when you jump on it, but it's about normal for high powered front drivers.
I looked at several GTs - I chose a silver one with cloth and no roof - I'm bald, so the roof is useless to me and I don't really care for leather except in big rides.
The dealer I did business with (there's more to the story, involving my trade, so I won't recommend them) had 11 GTs on the lot, all except the one I got had leather and a roof with the autostick.
Back to cars, I guess!
The people who I rent my house to are like this. Yes it would be great if they could really afford it but in reality they can't and their crappy credit shows it. These people (and there is a lot of them) are going to have to cut way way back on their consumption in the future either by choice or more likely because no one else will lend them more money to bankroll their consumption.
The discussion was about people with excessive lifestyle with respect to their income. And in my mind these people are indeed losers. They get to work until they are really old with the prospects for diminishing lifestyle. And for what - a fancy car and some nice clothes. It's their choice and in my opinion they have been very foolish.
I drive a big black Cadillac I ain't even paid for yet.
I had to sell off the funiture just to pay the rent.
I wear expensive suits I can't afford to clean.
So I freshen my old rags and seldom make the scene.
They think I'm rich - that's just a guess.
It's secret success!
It's so secret I don't even know about it!
I know credit is easy but paying 20 percent or whatever of your income for something that depreciates 50 percent in four years sounds crazy to me.
I actually know people at work who talk about buying 34-35 thousand dollars worth of car and it boggles my mind. That's actually why I had to decide to buy my second choice vehicle instead of the dream truck Ive lusted after for 5 years. Just couldn't bring myself to spend more than mid 20's on a vehicle, despite what all the full sized truck owners at work kept telling me about how the payments on an F150 or a Dodge Ram would only have been such and such an amount more per month than on my Dakota Quad Cab. Some people made fun of me when I showed off my Dakota for not paying a little extra per month for one of the more expensive full sized pickups.
Seems like the norm for most people to think in terms of what you can get for a certain montly payment. The salesmanager at my dealership kept suggesting if I didnt like the payments that I try a 72 month payment plan, and I had to explain to him like 10 times I wasn't drawing the payments out any farther than 60, though it would be paid for even faster than that, and if the final price of my vehicle would make the paymentes at 60 months more than I was comfortable with it was time for me to look at cheaper vehicles.
Most of my co workers do get bored with a vehicle and start thinking trade-in before it's fully paid off. Others talk all about how they're 'used to' paying 350 per month, so if the new dealer can make it happen for about that and it doesn't cost them any more per month to trade they'll be happy. I even know one guy who makes less than I do paying almost 600 bucks a month on a BMW 5 series.
When I talk about how I plan to run this truck for twice the length of the loan at minimum and my goal is never to have to finance again, they look at me like Im a nut. One guy even tells me I dont seem to know anything about the right way to handle car purchases, and it's better to just trade up every couple years while your car is still worth something.
My financing was 4.75, 5 years.
That's funny about trading up while your car is still worth something. Trading in is a suckers bet, unless you can save decently on the taxes.
On the other hand, the imports tend not to have much dealer cash offered. So depriciation makes buying used more of a deal. For my truck the way it was configured I was looking at MAYBE at tops a 2-3 thousand dollar discount or so for a 1-2 year old model with 20-30K on the clock. And that's assuming I wasn't gonna buy the extended warranty, which I probably would have.
I just ballparked these numbers as an example (but based on my '99 maxima), but I do feel that it is not always so cut and dried which way is better.
Like E said, really depends on the specific car and deal
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
Like others, I could buy a lot more house for what we earn, but, with our kids being teenagers and not too many years from being gone, why would we need a bigger house?
Same with our cars. Just got rid of our '02 Explorer and replaced it with an '03 Focus. Rarely do we all ride together anymore (the kids are 17 and 15), so having a large vehicle didn't make sense for us.
my .02